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The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

Consider Vladimir Putin's comments on January 26. Speaking to students at St. Petersburg, the Kremlin leader said the Ukrainian Army is not really the Ukrainian Army at all. Those soldiers fighting pro-Moscow separatists in Donbas? They're actually NATO's foreign legion.

"We often say: Ukrainian army this, the Ukrainian army that. In actual fact though, who is fighting there? These are indeed official subunits of the armed forces. But to a large extent these are so-called volunteer nationalist battalions," Putin said.

"In effect, it is no longer an army but a foreign legion -- in this case NATO's foreign legion -- which does not of course pursue Ukraine's national interests. They have a completely different agenda that is connected with achieving the geopolitical objective of containing Russia."

Yep. He actually said that.

Putin is doing a number of things here. On one level he is playing that old Kremlin game of drawing equivalencies.

The West has long accused Moscow of manufacturing the separatist conflict in the Donbas, arming and supplying the militants, and sending in Russian troops to direct and reinforce them.

So Moscow naturally -- indeed almost instinctively -- says the West is doing the same with the Ukrainians: Look! NATO has little green men too!

But there is more here than the Kremlin's standard run-of-the-mill -- and entirely false -- whataboutism. It is more insidious than that.

There Is No Ukraine

Putin famously said that Ukraine "isn't even really a country." And here he is again peddling his longstanding meme that the Ukrainians themselves have no agency of their own. They are nothing but the playthings of great powers. Their army isn't even their army. And right now, they're just NATO pawns.

And this belief is actually pretty widespread in the Russian elite. In a recent article, political analyst Aleksandr Sytnik provided an eye-opening inside look at how decisions were made in the run-up to the Ukraine crisis.

Sytnik recently left his post as a senior fellow at the Russian Institute for Strategic Research, a Kremlin-run think tank that provides expert analysis for foreign policy decision making.

Sytnik writes that the institute's director, Leonid Reshetnikov, is a staunch Orthodox Christian who romanticized the tsarist Russian Empire. And the director of its Ukraine department, Tamara Guzenkova, was deeply hostile to the very notion of Ukrainian statehood.

The pair, Sytnik wrote, was fond of repeating phrases like: "there is no Ukraine, only Little Russia;" "Ukrainian statehood is a bluff and Ukraine is a failed state;" and "the Ukrainian language was artificially created by the Austrians and the Poles to break up Russian unity." They were backed up by dependent and subordinate researchers.

Throughout the Ukraine crisis, the institute consistently gave the Kremlin bad advice based on faulty premises. It helped organize insurgency movements in eastern Ukraine and lobbied for the establishment of so-called Novorossia -- a strip of eastern and southeastern Ukraine stretching from Kharkiv to Odesa.

It isn't entirely clear whether the institute was the architect of Russia's Ukraine policy over the past year, or whether they simply reinforced the prevailing prejudices in Putin's inner circle.

What is clear, however, is that their analysis -- as represented by Sytnik -- overlaps completely with the policies that the Kremlin enacted. It also illustrates the prevailing groupthink about Ukraine in the inner sanctum of Russian decision making.

We're Fighting NATO!

But Putin's widely shared delusions about Ukraine are not even the most disturbing thing about his comments.

What he is really getting at here is nicely captured in a tweet by journalist Natalia Antonova.

This really gets to the heart of things. Putin wants to view the Ukraine conflict as a twilight showdown between Russia and the West. But his endgame in this fantasy isn't Ukraine -- it's the West itself.

In a recent interview with the Kyiv Post, military analyst Pavel Felgenhauer recalled a conversation he had with a European ambassador present at high level meetings with Russian officials.

"Russians all the time want to put a map on the table and carve up Europe, Yalta-style, or Molotov-Ribbentrop style," Felgenhauer said.

"Russia is waiting for the West to begin talking on substance -- where Vilnius goes, where Lviv goes. In the Russian view, there should be a map and a line on the map. They can’t say so publicly. They would want a secret appendix."

Now that's never going to happen of course. But it nicely illustrates the level of delusion among Russian officials these days. And if that is indeed Russia's endgame it's still pretty damn chilling.

Mini Me: The Shrinking 'Collective Putin'

Part of the reason such groupthink is prevailing among Russian decision makers is because the group calling the shots is getting smaller and smaller.

According to media reports, the so-called "collective Putin" -- that inner sanctum of decisionmaking -- has shrunk to just a handful of trusted advisers -- all of them hardliners associated with the security services.

The economic elite both inside and outside government, which has been urging an exit from the Ukraine crisis, has been marginalized. Bloomberg reported recently that officials dealing with economic issues complain of needing to wait months just to present their policy proposals to the president.

Political analyst Gleb Pavlovsky, who advised Putin during his first two terms, told Bloomberg that there was “a very high level of concern among a fairly wide circle of people” in the Russian elite.

"There is a group of people in the upper echelons trying to protect themselves from losses," Pavlovsky said. “They are critical of Putin but they can’t challenge him because he can easily crush them. That makes them even more unhappy."

Not only is Putin not talking to his economics team -- he apparently isn't even thinking about the economy.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

Since the Ukraine crisis erupted, the Kremlin disinformation machine has been in constant overdrive. And we've learned a lot about the role of propaganda and subterfuge in hybrid war.

Nutty statements from Russian officials are so commonplace that we almost don't even notice them all anymore.

But we seem to be crossing a threshold and getting close to a very dangerous point. When you build up a make-believe world and surround yourself with only people who reinforce it -- there comes a point where you cannot distinguish reality and fantasy.

And if Putin really believes his own hype, then we're in a very frightening place, indeed.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

Published 22 January 2015
The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

The battle between Ukrainian forces and pro-Russia separatists in Donbas is settling into a tense and fragile stalemate.

But the real battle between Moscow and Kyiv is only just beginning.

If 2014 was largely defined by the military conflict between Russia and Ukraine, now -- with both countries economies devastated by the conflict -- the coming year will likely be defined by a war of governance. Moscow is doubling down on its statist authoritarian model, while Ukraine is attempting to create a European-style free-market democracy.

And a lot is riding on which model wins.

On the latest Power Vertical Podcast, we discuss this front in the Russia-Ukraine conflict.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVertical or on the Power Vertical Facebook page.

The Daily Vertical is a video primer for Russia-watchers that will appear Monday through Friday. Viewers can submit suggested topics to address on Twitter @PowerVerticalor on the Power Vertical Facebook page.

In many ways, the Russia story over the past year can be summed up as a tale of two Tuesdays -- nine months apart.

On Tuesday March 18, there was Vladimir Putin's rousing, swaggering, chest-thumping speech to the nation announcing the annexation of Crimea and heralding Moscow's new dreams of empire. That was the day that Russia challenged the world order

And then the bill came due. On December 16, there was Black Tuesday, when the ruble crashed and the economy swooned under the weight of falling oil prices and Western sanctions. That was the day the world order bit back.

The Kremlin is no doubt feeling the heat. And on the first Power Vertical Podcast of 2015, we look at how it is likely to react.

He accused the West of trying to destroy and dismember Russia. He trumpeted the annexation of Crimea, which he called hallowed ground for Russians. And he said speculators were behind the dramatic decline in the ruble's value -- speculators he pledged to punish.

And over the 75 minutes that Vladimir Putin spoke, the ruble lost more than 1.2 percent of its value.

With the Russia currency tanking, oil prices falling, and the Russian economy reeling, Putin offered no apologies, no retreat, and no plan in his annual state-of-the-nation address -- a speech that can be summarized by three Ds: Defiance, Denial, and Delusion.

But despite the bluster, Putin's luck may be running out as the economic costs of his Ukraine adventure begin to hit home.

In the latest "Power Vertical Podcast," we look at Putin's big speech in the context of Russia's looming recession.

Vladimir Putin has been on quite a roll for about a year now. But December 1, 2014, just might turn out to be the day the tide finally turned against him.

Ever since Russia's annexation of Crimea in March sparked the worst East-West showdown since the Cold War, Moscow has enjoyed a clear asymmetrical advantage: it was prepared to use force to achieve its ends in Ukraine -- and perhaps elsewhere -- while the West was not.

But this week marked something of an inflection point where whatever short-term asymmetrical advantages Moscow enjoyed are now being eclipsed by its long-term structural weaknesses.

And the signs they were aplenty.

First, there was the ruble. The Russian currency -- reeling from the combined effect of sanctions and falling energy prices -- experienced its sharpest one-day drop since the August 1998 financial crisis on December 1, falling below the psychologically important level of 50 to the dollar for the first time.

And then there was oil. The price of this backbone of the Russian economy has fallen 25 percent since the summer. On December 1, following OPEC's decision not to cut production, the price of Brent Crude, the world benchmark, dipped below $70 a barrel, a five-year low. And the slide is expected to continue.

"What do the ruble, oil, and Vladimir Putin have in common?" goes a joke making the rounds in Moscow. "They will all hit 63 this year."

And, of course, there was South Stream. After talks with Turkish President Recep Tayyip Erdogan in Ankara on December 1, Putin announced that Russia will drop the South Stream natural-gas pipeline -- a project the Kremlin once hoped would cement Moscow's dominance over Europe's energy market. The move followed Brussels insistence that Gazprom abide by the EU's antimonopoly laws -- which it had been flouting for years.

The New York Times' Andrew Roth called the scrapping of South Stream "a rare diplomatic defeat" for Putin and "a rare victory for the European Union and the Obama administration, which have appeared largely impotent this year as Mr. Putin annexed Crimea and stirred rebellion in eastern Ukraine."

All true. But such a turnaround was also pretty predictable. And we should expect to see more setbacks for the Kremlin in the coming months.

Because a key source of Russia's strength has long been its ability to reap the benefits of being integrated into the global economy and be treated as a respected member of the international community -- while at the same time flouting their rules.

Prior to the Ukraine crisis, Putin's Russia had indeed found something of a sweet spot.

It was a respectable G8 member that was able to spread its influence by corrupting Western elites, stealthily buy up European energy infrastructure through shady shell companies, and flagrantly violate the EU's antimonopoly legislation.

It could even behave like a rogue occasionally, as in the August 2008 invasion of Georgia, and get off with barely a slap on the wrist.

But in Ukraine, Putin basically jumped the shark. By annexing Crimea he initiated the first forceful change of borders in Europe since World War II. And by manufacturing a pro-Moscow insurgency in Donbas, he effectively invaded Ukraine.

Once this happened -- and particularly after pro-Moscow separatists downed Malaysia Airlines Flight 17 -- it was no longer possible for Western leaders to continue to pretend that Russia is a respectable member of the international community. It became untenable to carry on with the charade that Moscow was a partner with which they could work. Instead, Russia became a problem they needed to confront.

Russia became a rogue state. And once it did, a crucial source of its strength began to melt away.

Western sanctions and the steady isolation of Russia from the world economy might not have been enough to contain Moscow in the short term. But, with an assist from falling energy prices, they are more than enough to cripple it in the long run.

And the long run begins now.

The Russian government on December 2 acknowledged what has long been obvious, that the economy would slide into recession in 2015.

Official projections say it will contract by 0.8 percent while other estimates say it could shrink as much a 2 percent. Disposable incomes are expected to drop by 2.8 percent. Inflation this year is at 9 percent, and is projected to continue rising. And capital flight is forecast to reach $128 billion.

And on top of all that, Russian firms owe $700 billion to foreign banks and, due to sanctions, are largely blocked from any additional Western financing.

The looming economic crunch "is a completely new reality" for Putin, economist Sergei Guriyev, who fled Russia last year, told "The New York Times."

"He has always been lucky, and this time, he is not lucky," Guriyev added.

He managed to thwart U.S. air strikes against his ally, Syrian President Bashar al-Assad. He strong-armed Armenia -- and temporarily, Ukraine -- into abandoning plans for a free-trade pact with the European Union in favor of the Moscow-led Eurasian Union.

Putin has indeed had a strong year. But 2015 promises to be a lot rougher.

About This Blog

The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It covers emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power VerticalFacebookpage or Follow @PowerVertical